Expert Networks, Inside Trades, Armor, News Corp: Compliance

U.S. investigators received
permission in 2009 to wiretap 104 callers to two conference
lines used by Primary Global Research LLC, a so-called expert
networking firm, according to a court filing.

U.S. District Judge Kevin Duffy in Manhattan signed an
order in October 2009 permitting investigators to listen in on
the lines, which included Primary Global customers, four
employees and five consultants, according the court filing
submitted July 12 by James Fleishman, a former sales manager at
the firm.

Fleishman, who is scheduled to be tried on two counts of
conspiracy next month, submitted the order and related papers in
support of his motion to block the government from introducing
evidence from the wiretaps.

Primary Global is at the center of a nationwide probe of
insider trading at hedge funds, technology companies, banks and
consulting firms. Winifred Jiau, a former Primary Global
consultant, was convicted of securities fraud and conspiracy
June 20 in Manhattan federal court.

Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara
in Manhattan, declined to comment.

The case is U.S. v. Fleishman, 11-CR-32, U.S. District
Court, Southern District of New York (Manhattan).

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Galleon Insider Case’s Chiesi to Pay $540,000 in SEC Suit

Danielle Chiesi, who pleaded guilty to insider trading in
January, agreed to pay $540,000 to settle related allegations by
the U.S. Securities and Exchange Commission.

A final judgment in the case, signed by U.S. District Judge
Jed S. Rakoff in New York, was posted on the court’s electronic
docket yesterday with Chiesi’s signed consent dated June 29.

In addition to her liability for $500,000 in principal and
$40,535 in interest, Chiesi agreed not to violate SEC rules
prohibiting her from directly or indirectly engaging in
fraudulent or deceptive practices including insider trading.

Chiesi, 45, who was an analyst at New Castle Funds LLC, and
Mark Kurland, New Castle’s co-founder, both pleaded guilty in
connection with a government investigation of hedge-fund insider
trading centered on Galleon Group LLC and its co-founder, Raj
Rajaratnam.

The SEC first sued Rajaratnam, Chiesi, Kurland and three
other people in October 2009. Her agreement resolves allegations
contained in a revised complaint filed last year.

Chiesi’s lawyer, Alan Kaufman, yesterday declined to
comment on the agreement. John Nester, a spokesman for the SEC,
didn’t immediately respond to a phone message seeking comment.

The criminal case is U.S. v. Rajaratnam, 09-cr-1184, U.S.
District Court, Southern District of New York (Manhattan). The
civil case is Securities and Exchange Commission v. Galleon
Management LP, 09cv8811, U.S. District Court, Southern District
of New York (Manhattan).

Compliance Action

Armor Holdings to Pay $16 Million to Settle Bribery Claims

Armor Holdings Inc., the military-truck maker that’s now a
unit of BAE Systems Plc (BAESY), agreed to pay $16 million to resolve
U.S. claims it bribed a United Nations official to win contracts
connected to peacekeeping missions.

The company will pay $10.3 million to resolve criminal
charges and $5.7 million to settle related civil claims, the
Justice Department and Securities and Exchange Commission said
in separate statements yesterday. The payments violating the
Foreign Corrupt Practices Act, which began as early as 2001,
took place before London-based BAE acquired the company in 2007,
the Justice Department said.

In 2001 and 2003, Armor employees set up sham consulting
contracts to funnel bribes to a UN procurement official in
exchange for information about competitors’ bids to provide body
armor for peacekeeping troops, according to the complaint. Armor
won about $6 million in contracts through the corrupt payments
for a profit of about $1 million, the Justice Department said.

“Armor and BAE Systems have cooperated extensively with
the government since this conduct was first reported in April
2007,” BAE spokesman Brian Roehrkasse said in a statement. As a
result of Armor’s “disclosure, cooperation, and extensive
remediation, the DOJ and SEC have entered into settlements that
close the matter without any FCPA prosecution or litigation.”

In settling the SEC claims, Armor didn’t admit or deny the
allegations. The criminal probe by the Justice Department was
settled with a non-prosecution agreement that cited the
company’s cooperation and internal investigation in the case.

The SEC case is Securities and Exchange Commission v. Armor
Holdings Inc., 1:11-cv-01271, U.S. District Court, District of
Columbia (Washington).

Democratic Senators Jay Rockefeller of West Virginia,
Barbara Boxer of California and Frank Lautenberg of New Jersey
yesterday asked Attorney General Eric Holder and SEC Chairman
Mary Schapiro to investigate whether News Corp. violated U.S.
law as a scandal over phone hacking unfolds in Britain.

The lawmakers asked the agencies to investigate whether New
York-based News Corp. violated the Foreign Corrupt Practices Act
in light of allegations that employees of the company’s now-defunct London tabloid News of the World bribed U.K. police.
News Corp. yesterday abandoned its 7.8 billion-pound ($12.5
billion) bid for full control of British Sky Broadcasting Group
Plc amid a growing political backlash.

“The reported allegations against News Corporation are
very serious, indicate a pattern of illegal activity, and
involve thousands of potential victims,” Boxer and Rockefeller
said in their joint statement. “It is important to ensure that
no United States laws were broken and no United States citizens
were victimized.”

The U.S. Justice Department will review the senators’
letters, spokeswoman Laura Sweeney said, declining to comment
further. SEC spokesman John Nester also declined to comment.
White House spokesman Jay Carney said the Obama administration
is aware of the situation and referred questions about the
Justice Department and SEC to the two agencies.

Toy Lead Limits Cut Two-Thirds by U.S. Consumer Safety Panel

The U.S. Consumer Product Safety Commission voted to lower
limits on lead content in children’s goods, starting next month,
while raising concerns about the costs to retailers who may have
to dispose of inventory.

Yesterday’s 3-2 vote comes four years after the discovery
of lead paint in toys from China that prompted legislation
expanding the safety agency’s powers. The commission followed
its staff’s recommendation yesterday to lower the maximum
acceptable lead content to 100 parts per million, from 300 parts
per million.

The new limits will take effect on Aug. 14, CPSC Chairman
Inez Tenenbaum said.

“The scientific literature is abundant and has established
there is no safe limit for lead,” Tenenbaum said.
“Technologically feasible does not mean economically
feasible.”

The commission’s two Republicans, in comments before the
vote, accused its three Democrats of regulatory overkill,
adopting a policy that will add costs to businesses without a
commensurate safety benefit.

Commissioner Nancy Nord, the senior Republican, said there
will be higher costs, fewer choices for consumers and closings
of small businesses.

“Just because it’s out there somewhere on the planet
doesn’t mean it’s commercially available,” Nord said. “Just
because a material is out there for a jet plane doesn’t mean
it’s appropriate for a toy plane.”

The agency was criticized by lawmakers of both parties as
failing to protect consumers in 2007, after toys from China such
as Barbie accessories made by El Segundo, California-based
Mattel Inc. (MAT), the world’s largest toymaker, and RC2 Corp.’s
Thomas the Tank Engine trains were recalled for containing high
levels of lead paint.

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Courts

WaMu, Creditors Face Insider Trading Claim at Exit Hearing

Washington Mutual Inc., former owner of the biggest U.S.
bank to fail, began a court hearing yesterday to end its
bankruptcy facing a shareholder claim that it enabled hedge
funds to profit from insider trading.

During a three-day hearing, shareholders will try to show
that WaMu’s reorganization plan is tainted by the hedge funds’
alleged use of confidential information to trade in the bank
holding company’s debt.

WaMu “fed four of these hedge funds, known as the
‘settlement noteholders,’ confidential inside information about
the debtors and about settlement negotiations and then turned a
blind eye to trading that the settlement noteholders were
conducting based on this information,” a committee of
shareholders said in court documents unsealed yesterday.

Shareholders would get nothing under a reorganization plan
that was negotiated with JPMorgan Chase & Co. (JPM), the four hedge
funds and the Federal Deposit Insurance Corp. U.S. Bankruptcy
Judge Mary Walrath has already approved the main settlement that
plan is based on and is now being asked to approve the plan
itself, which would distribute more than $7 billion to WaMu’s
creditors.

The hedge funds, Aurelius Capital Management LP,
Centerbridge Partners LP, Appaloosa Management LP and Owl Creek
Asset Management LP, all deny that they engaged in insider
trading. They have argued in court papers and in hearings that
the information they used to buy and sell WaMu’s debt was either
publicly available or wasn’t “material,” and therefore its use
was legal.

The case is In re Washington Mutual Inc., 08-12229, U.S.
Bankruptcy Court, District of Delaware (Wilmington).

Banks and Investors Seek to Intervene in Bank of America Deal

Six federal home loan banks filed court papers seeking to
intervene in a case in which a New York state judge will decide
whether to approve a proposed $8.5 billion settlement by Bank of
America Corp. (BAC) over mortgage-securitization trusts. A group of
investors operating under the name Walnut Place reaffirmed their
request to intervene in the case as well, and TM1 Investors also
filed a request to intervene.

The motions filed yesterday in Manhattan came a day after
it was revealed that New York Attorney General Eric Schneiderman
is seeking client information from more than 20 companies as
part of a probe of the deal.

ThyssenKrupp Wins $225 Million Cartel-Fine Cut, Otis Loses

ThyssenKrupp AG (TKA) won a court appeal to slice 159.9 million
euros ($225 million) off a 479.7 million-euro antitrust fine for
carving up the markets for elevators and escalators.

The European Commission penalized five companies 992.3
million euros in February 2007 for their roles in the elevator
cartel. Appeals by ThyssenKrupp and its units, whose overall
fine was the biggest in the cartel, made up about half of the
cases before the court. Otis was fined 224.9 million euros, Kone
142.1 million euros and Schindler 143.7 million euros.

The penalty was an EU record at the time. It has since been
surpassed by a 1.38 billion-euro EU penalty imposed in 2008 on
three companies, including Cie. de Saint-Gobain SA, for
unlawfully rigging car window prices, and by a 1.1 billion-euro
fine in 2009 for price-fixing on sales of natural gas in
national markets.

The elevator companies were accused of setting prices in
Belgium, Germany, Luxembourg and the Netherlands between at
least 1995 and 2004. They rigged contract bids, allocated
projects to each other and shared confidential information, the
commission said.

Schindler said it would appeal the ruling. Kone said in a
statement it would study the judgment before deciding on further
steps, adding that its penalty was recognized as a cost in the
first quarter of 2007.

ThyssenKrupp said in an e-mail that it welcomed the court’s
decision. The Essen, Germany-based company declined to comment
further until it has studied the ruling.

Spokespeople for Otis declined to immediately comment.
Mitsubishi Elevator Europe BV was fined 1.8 million euros in the
cartel. It didn’t appeal.

Yesterday’s decisions can be appealed a final time to the
EU Court of Justice, the region’s highest court.

Deutsche Bank Said to Try Settling ‘Spread Ladder Swap’ Cases

Deutsche Bank AG (DBK), Germany’s biggest bank, is trying to
settle pending lawsuits involving swap contracts that were
similar to those in a German high court decision that ruled
against the lender.

The bank has settled several cases and is trying to end
others in lower tribunals and Germany’s top civil court, three
people with knowledge of the issue said. They declined to be
identified because the negotiations are private.

The Federal Court of Justice, Germany’s top civil court,
ruled in March that Deutsche Bank must cover losses caused by a
derivative it branded “CMS Spread Ladder Swap,” unless the
bank disclosed the product had an initial negative market value.
The bank said at the time that there are eight cases at the top
court and 17 in lower courts over the same type of derivative.

Deutsche Bank respects the Federal Court of Justice’s legal
assessment and is reviewing to what extent it applies to pending
cases, said Armin Niedermeier, a spokesman for the Frankfurt-based lender. The bank declined to comment further, he said.

Frankfurt judges postponed a hearing this month involving
the bank and the city of Neuss after the parties said they were
in settlement negotiations, said Arne Hasse, a court spokesman.
The case involves claims of 8 million euros ($11.4 million), he
said.

Speeches/Interviews

Treasury’s Miller Warns Against Effort to Weaken Dodd-Frank

“Scaling back or repealing major parts of the Dodd-Frank
Act, or not providing regulators with the funds they need to
implement the act, will leave our economy exposed to a cycle of
collapses and crises, with potentially devastating
repercussions,” Miller said in remarks prepared for a speech in
New York.

Miller was speaking at a conference held by the Securities
Industry and Financial Markets Association, Wall Street’s
biggest lobbying group, to mark the one-year anniversary of
Dodd-Frank, which was signed into law on July 21, 2010.

House Republicans, swept into power in the November 2010
elections, are pushing bills to revise, delay or repeal parts of
the law affecting areas including the Consumer Financial
Protection Bureau, derivatives rules and registration
requirements for private-equity advisers. Regulators are still
working to write hundreds of rules mandated by the law.

“We can’t allow loopholes, gaps and weaknesses to
undermine the fundamental strength of our reform,” Miller said.
“The leaders of the major U.S. financial institutions should be
champions, not opponents, of ensuring that regulators have
sufficient resources to achieve their objectives.”

It’s essential that regulators “have the critical
resources necessary to do their jobs effectively,” Miller said.
“If resources are not adequate, we simply will not be able to
bring the care and judgment to the process that will allow the
new rules to work.”

Miller was nominated by President Barack Obama on July 1 to
be promoted to Treasury undersecretary for domestic finance.